June 2011

August 2009

August 31, 2009

Active ETFs may have better tax advantages because the fund manager can sell the lowest-basis stocks via in-kind stock transfers through the creation and redemption process. This helps systematically reduce the tax exposure for investors.As with traditional mutual funds, there may be tax consequences later in the year, so stay tuned to the fund.

Until ETFs have experience over a number of economic cycles, the analysis for tax advantages will be incomplete. As with traditional mutual funds, ETFs have had end-of-year distributions, something that wasn’t supposed to happen when ETFs were initially introduced. So beware of the supposed tax advantages of ETFs until ETFs have been in existence for approximately 15 years, or more.

August 28, 2009

One of the chief advantages of index-based ETFs was low expense ratios. Actively managed funds generally do cost more. Try and get an idea of what the fee structure will be before you invest. Compare these fees to similar investments in the mutual fund arena. Remember, if there is one indicator of how a fund might perform in the future it is low cost, or low expense ratio.We generally look for funds in the least expensive quartile of the peer group.

Further, studies have shown that the expense ratios for ETFs can often be higher than the expense ratios of open-end mutual funds on an apples-to-apples comparison. For example, a Wall Street Journal study in 2007 showed that on an index-by-index comparison, Vanguard and Fidelity mutual funds had lower expense ratios than the comparable ETFs, in all but one case (in that case it was a tie!). Also, there are no trading costs for the mutual funds, while the ETFs have trading commissions to buy or sell.If you’re at one of those full service brokers, the trading commissions can be huge dollars.

August 27, 2009

It may make sense for some investors to look at how ETFs fit into their overall portfolio mix given their particular retirement and investment objectives as well as tax considerations.We recommend clients look for funds that “stick to their knitting.”What we mean is that a large blend fund ought to invest in large blend companies, small value funds should be investing in small value companies, and so on across all asset classes chosen for the portfolio.

August 26, 2009

Some experts believe as this category develops, the first baby steps for investing will go toward major stocks.These big companies are generally less volatile and tougher for competitors to mimic the buying strategy, since the companies are so well covered by analysts. Others believe actively managed ETFs will operate with a series of managers whose moves would be tougher to spot on any particular ETF’s disclosure list. As actively managed ETFs evolve, it makes sense to ask some questions which we’ll answer over the next few posts.

August 25, 2009

One of the biggest concerns we come across in estate planning is not the preparation of the documents, but the securing of the documents.Usually, people will think their estate plan documents should be in a secure place. That’s absolutely true, but a certified copy should be in the safe deposit box, not all of your copies!

We often ask clients to place one certified copy in a safe deposit box and another certified copy should be in a fire-resistant metal box somewhere at their home. For those really watching their pennies, a refrigerator might work quite well as a substitute.

Further, the people with the responsibility of acting as a trustee, guardian, conservator, or attorney-in-fact ought to have a copy, or at the very least quick, access to the documents. As mentioned in yesterday’s post, you should strongly consider discussing these documents and your intentions for your survivors and estate with these important people. If you don’t explain your intentions to these people whom you’ve asked to handle your affairs, they can’t possibly read your mind and get it perfectly right.

August 24, 2009

Once you’ve established the team to carry out your wishes in a variety of situations, then you should have such instructions written into a formal estate plan.The written plan should cover the waterfront of issues you’re concerned about, not just in the case you are diagnosed with dementia.

The basics of the estate plan will be the necessary powers of attorney, as well as your updated will. The two powers of attorney we’re focusing on are those to help you with your finances if you become incapacitated, and to make medical decisions for you if you can’t make them for yourself.

Your team should include the services of an experienced estate attorney, a CPA, your financial advisor, your business counsel, your insurance advisor, and most importantly, your loved ones.One of the biggest challenges we see clients facing is how much detail to divulge to their heirs.Our view is that what you don’t tell them, they don’t know.If you have specific wishes, deal with them while you can, because afterwards there will be no going back.

August 21, 2009

It would be wise to confer with a tax professional as well as a trained financial professional, whether it’s a CFP® or someone with specific training in this area. Be very careful, the Commonwealth of Virginia and other jurisdictions have been cracking down (quite appropriately I’d say) on people touting "senior- specific" designations that were either misleading or simply fronts for sales pitches.

The professionals and nonprofessionals working with you in this role should have significant experience working with seniors.All of your advisors should be prepared to interact with other members of your team if they notice anything particularly out of character in your future actions.

August 19, 2009

It’s not fun to imagine yourself in the state dementia brings, so it’s very important to consider trigger points where trusted people would step in to do specific functions for you. It would make sense to pre-select individuals as your executor.It would make sense to pre-select your attorneys-in-fact to be responsible for paying bills and executing your specific investment wishes under specific circumstances (long terms for powers of attorney).

So why don’t so many of us execute these very important decisions?The two most common reasons are the fear of dealing with death or incapacity, and the feeling of invincibility each of us seems to enjoy (and sometimes to our detriment!).

If an elderly relative becomes sick and irreversibly incapacitated, the equity in either their home or your home may come under consideration as a resource to pay uncovered medical or household maintenance bills.

The family home is both a major asset and an emotional focal point.It’s best to get good advice and spell out specifically what you want done with your property and under what conditions.One possible solution is a reverse mortgage.Another might be to sell the residence and use the proceeds.

Other possible assets include retirement accounts, and government assistance, such as Medicaid.Don’t expect much help from Medicaid, though.Seek the advice of an experienced Medicaid advisor (such as an attorney) before transferring or selling assets to qualify for Medicaid.

If your home becomes the asset of choice, then you might access the equity through a home equity line of credit.Unfortunately, these have become more difficult to obtain since the credit crisis began last year.

August 18, 2009

When a close relative or friend starts to display signs of dementia or related neurological ailments, it is a family tragedy requiring speedy action and medical care.Unfortunately, in many cases, the disease comes on gradually.It only becomes evident with inconsistencies in behavior and sometimes, problems with money.

It is not uncommon for older people with diminished cognitive function to be a ready target for scams and ID theft as well as out-of-character decisions with regards to savings or investments.

If this were you in five, 10 or 20 years, would you have a plan?

In July 2008, a Mayo Clinic study reported men were twice as likely as women to develop mild cognitive impairment over the age of 70.These ages are a transitional phase between healthy aging and full-blown dementia.Dementia is a significant loss of intellectual and memory abilities severe enough to interfere with social or occupational functioning. Women develop Alzheimer’s disease in greater numbers than men, due largely to the fact women live longer than men.

So when does a failing memory become a money issue? In the best circumstances, as part of a full estate planning process before an individual becomes ill. In the worst, it needs to happen immediately after a loved one is diagnosed.

Once stricken, older relatives may be unable to understand questions or express their wishes in proper detail. If there is no plan, family members grasp at fulfilling their responsibilities, or worse, shirk them. Family members are often left without any idea of what the older relative would really want.

So what’s the answer? Everyone should make a plan that includes the worst-case scenario of incapacity in one’s long-term financial plan.Over the next few days we’ll examine this in greater detail.